Pausing or Stalling or ready to plunge?

Missed most of yesterday's trading because of urgent unscheduled business matters but the BULLS again came back with

dip-buyers ensuring there was only a minimal SPX drop.

It is quite straightforward: the bulls can say this is a pause that refreshes, consolidation, and getting reay for another major assault to move our of the 2790/2810 SPX zone; the bears can say momentum is falgging, market fizzling, the newbie latecomers are buying at the top, and the plunge is near!

It does seem that politics seem to affect the market more than FA or TA, but, ultimately, SENTIMENT rules, with FA and TA playing minor roles (FLAME ME!!)

So, we are where we have been several times during the past few trading days & still waiting for a breakout - up or down. I think it will be DOWN.

Free After-Hours Update:

The S&P 500 broke through the 2,800 milestone Monday after Trump officially postponed the March 1st Chinese tariff escalation. That put traders into a buying mood. Unfortunately, the enthusiasm was short-lived and we quickly slipped back under this widely followed level. We flirted with 2,800 resistance again Tuesday, but ultimately we were unable to close above it.

The market hit its head on 2,800 resistance last October, November, and December, each occurrence resulting in a significant tumble. Over the last two days, it has proven to be a stumbling block again. Will this time end differently than the last three? That is the question everyone is wondering.

Widely watched resistance levels often turn into self-fulfilling prophecies. Prices rally up to resistance. Technical traders see this signal as a good place to take profits. Their profit-taking pressures prices, leading to a small pullback. Other traders see the weakness develop, so they start selling too, adding even more pressure. Prices keep slipping until either we run out of sellers, or they are attractive enough that dip buyers jump in and take advantage of the discounts.

Given how far the market’s come since the Christmas lows, it wouldn’t be a surprise to see the market take a break and catch its breath. In fact, that would be the normal and healthy thing to do. I would be far more concerned about the sustainability of this rebound if we keep racing ahead without resting.

The daily back and forth is what keeps the market fresh. These gyrations squeeze out the weak and replace them with the confident. But we have had very little pausing and refreshing since this rebound began back in December. Unfortunately, that means a lot of weak hands are still holding on. Rather than flush them out in small, periodic pullbacks, the supply of weak hands is building up to the point where the next pullback could trigger a mass exodus and do a lot of damage.

In many ways, the market is like a forest. Small fires clear out the debris and keep it healthy. Wait too long between fires and too much fuel accumulates, meaning the next fire has the potential to be devastating. At the moment, everything is great and everyone is enjoying themselves. But all it takes is one spark to send everything up in smoke.

The challenge is knowing what that spark will be and when it will come. Until then, everything will be great. Prices will keep drifting higher until they don’t. Knowing what the market will do is the easy part because it keeps doing the same thing over and over again. The hard part is getting the timing right. That is where all the money is made. While we don’t know the timing of the next dip, that doesn’t mean we cannot prepare for it.

For our long-term positions, there is nothing to see or do here. If we are not selling for years, what happens over the next few weeks is meaningless and we can (and should) completely ignore these near-term gyrations. But for a short-term swing trade, we need to be careful up here. Given how far prices have come, the rewards left ahead of us are a lot smaller than the risk underneath us. The time to buy the discounts was weeks ago, not now that prices are far higher. If a trader is doing anything, they should be taking profits, not adding new money. We only make money when we sell our winners and that almost always involves selling too early. People who get greedy and hold too long often end up giving back all of their profits and then some.

To be clear, I’m definitely not bearish and am not predicting a collapse. I’ve just been doing this long enough to know that I should be cautious when everyone else is feeling good. I’m not calling a top, just warning people to be careful. A routine pullback to 2,600 is most definitely not a collapse, but it will feel like it if a person wasn’t prepared for it. The best way to avoid making poor trading decisions is to not be surprised by the normal and routine.

The McClellan Volume Summation Index measures advancing and declining volume on the NYSE. During the last month, approximately 13.00% more of each day's volume has traded in advancing issues than in declining issues, pushing this indicator towards the upper end of its range for the last two years.

Last changed Jan 24 from a Greed rating

Updated Feb 26 at 4:07pm

Stock Price Strength

Extreme Greed

The number of stocks hitting 52-week highs exceeds the number hitting lows and is at the upper end of its range, indicating extreme greed.

Last changed Jan 24 from a Greed rating

Updated Feb 26 at 4:05pm

Safe Haven Demand

Extreme Greed

Stocks have outperformed bonds by 4.24 percentage points during the last 20 trading days. This is close to the strongest performance for stocks relative to bonds in the past two years and indicates investors are rotating into stocks from the relative safety of bonds.

Last changed Feb 19 from a Greed rating

Updated Feb 25 at 7:00pm

Put and Call Options

Greed

During the last five trading days, volume in put options has lagged volume in call options by 37.73% as investors make bullish bets in their portfolios. However, this among the lowest levels of put buying seen during the last two years, indicating greed on the part of investors.

Ditto for me, as SHORT as I was in January 2018 -- mainly because I am flush with cash after I closed about 75% of LT Portfolio holdings after 12.3 % gain YTD, and holding 34 QQQ JUNE puts. The worse can happen if the markets shoot up from here is I make profits in NQ day trades, I lose in QQQ options, and I eke out another 1 or 2% in my remaining LT holdings.

I am back up to my highest net short exposure since late Summer. Downside risk, according to my calculus overwhelms upside reward. Tonite I issue my first Lemmings Alert.

This Wells Fargo strategist on @cnbc is a glowing example of FOMO. Buying semis now, because they represent value (despite the sharp share price rise) is a non compelling argument, imho. The "Bull Market in Complacency" is back - just as it was last September.

A lot of opinions flying around out here about the next step in the market. Parallels galore to what we have experienced in the past. The view below suggesting exercising caution is just one of many. AA #DriehausEM